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Waddell & Reed Financial, Inc. Reports Third Quarter Results

Company Release - 10/27/2020 6:45 AM ET

OVERLAND PARK, Kan.--(BUSINESS WIRE)-- Waddell & Reed Financial, Inc. (NYSE: WDR) today reported third quarter 2020 net income1 of $30.5 million, or $0.48 per diluted share, compared to net income of $24.8 million, or $0.38 per diluted share, during the prior quarter and net income of $33.1 million, or $0.46 per diluted share, during the third quarter of 2019. The third quarter of 2019 included $3.1 million in severance expense related to the outsourcing of our transfer agency transactional processing operations. Excluding the severance expense, adjusted net income for the third quarter of 2019 was $35.4 million and adjusted net incomeper diluted share was $0.492.

Highlights

  • Strong financial performance, with 11.5% increase in revenues compared to the prior quarter due to higher average assets benefiting both Investment Management revenues and Wealth Management Advisory revenues
  • Continued execution of strategic initiatives in Asset Management, with average Assets Under Management (AUM) up 10% compared to the prior quarter
    • Both sales and redemptions improved vs. the same quarter in 2019, particularly in institutional and unaffiliated
    • Continued progress in strategic pricing evaluation, with 75% of AUM at or better than competitor median fees
  • Successful quarter for Wealth Management recruiting and asset growth
    • Net new Assets Under Administration3 (AUA) continue to improve, and net new Advisory AUA were positive for the 7th consecutive quarter
    • Since January 1, 2020, 32 advisors have affiliated with Waddell & Reed with combined prior firm AUA totaling over $1.9 billion
    • $474 thousand average trailing 12-month productivity per Advisor for the third quarter of 2020 improved 2% and 12% compared to the prior quarter and the third quarter of 2019, respectively
  • Robust balance sheet continued to support investment in strategic growth and meaningful capital return
    • $744.6 million in cash and investments at the end of the third quarter of 20204
    • $56.3 million was returned to shareholders in the third quarter of 2020, including $40.1 million of share repurchases
  • Hired two executives focused on strategic growth – one to lead the technology teams dedicated to leveraging technology as a strategic asset across the organization, and one to develop and lead strategies in support of best-in-class client and advisor experience, processes and procedures

Philip J. Sanders, Chief Executive Officer of Waddell & Reed Financial, Inc. shared, “I am pleased with the progress in transforming our wealth management business this quarter with continued recruiting success, growth in advisory assets and further advancement of our technologies. At the same time, flows within our asset management business improved compared to the prior year, and our teams are seeing solid engagement across our distribution network.” Mr. Sanders continued, “While the operating environment remains challenging, we are as focused as ever on partnering with clients to help them realize their long-term financial goals through superior investment performance, advice and client service.”

______________________________

1 Net income represents net income attributable to Waddell & Reed Financial, Inc.

2 See Non-GAAP Financial Measures section and Reconciliation of GAAP to Non-GAAP Financial Measures table

3 Net new advisory AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.

4 Excluding restricted cash

Consolidated Financial Results

Three Months Ended

 

 

Nine Months Ended

 

 

 

Sep. 30,

 

 

Jun. 30,

 

 

Sep. 30,

 

 

Sep. 30,

 

 

Sep. 30,

 

 

 

2020

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

GAAP basis (in thousands, except per share data):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

267,670

 

$

240,034

 

$

270,680

 

$

771,437

 

$

800,244

 

Operating expenses

$

230,035

 

$

216,407

 

$

230,656

 

$

670,784

 

$

683,417

 

Operating income

$

37,635

 

$

23,627

 

$

40,024

 

$

100,653

 

$

116,827

 

Operating margin

 

14.1

%

 

9.8

%

 

14.8

%

 

13.0

%

 

14.6

%

Controllable expenses1

$

101,352

 

$

102,034

 

$

104,516

 

$

300,516

 

$

312,505

 

Net income

$

30,523

 

$

24,824

 

$

33,054

 

$

77,333

 

$

99,056

 

Net income per share, basic and diluted

$

0.48

 

$

0.38

 

$

0.46

 

$

1.18

 

$

1.33

 

As adjusted2 (in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

$

267,670

 

$

240,034

 

$

270,680

 

$

771,437

 

$

800,244

 

Operating expenses

$

230,035

 

$

216,407

 

$

227,575

 

$

670,784

 

$

680,336

 

Operating income

$

37,635

 

$

23,627

 

$

43,105

 

$

100,653

 

$

119,908

 

Operating margin

 

14.1

%

 

9.8

%

 

15.9

%

 

13.0

%

 

15.0

%

Controllable expenses

$

101,352

 

$

102,034

 

$

101,435

 

$

300,516

 

$

309,424

 

Net income

$

30,523

 

$

24,824

 

$

35,396

 

$

77,333

 

$

101,398

 

Net income per share, basic and diluted

$

0.48

 

$

0.38

 

$

0.49

 

$

1.18

 

$

1.36

 

Assets under management (in millions)

$

67,869

 

$

64,966

 

$

68,782

 

$

67,869

 

$

68,782

 

Average assets under management (in millions)

$

67,946

 

$

61,718

 

$

70,527

 

$

65,272

 

$

70,667

 

Assets under administration (in millions)

$

62,694

 

$

58,991

 

$

57,113

 

$

62,694

 

$

57,113

 

Average assets under administration (in millions)

$

61,400

 

$

55,181

 

$

57,411

 

$

58,583

 

$

55,770

 

Financial Summary

Revenues totaled $267.7 million for the quarter, an increase of $27.6 million, compared to the prior quarter and a decrease of $3.0 million compared to the third quarter of 2019. Operating expenses for the quarter of $230.0 million increased $13.6 million compared to the second quarter of 2020 and decreased $0.6 million compared to the third quarter of 2019. Adjusted operating expenses2 increased $2.5 million compared to the third quarter of 2019. The operating margin was 14.1% during the current quarter, compared to 9.8% and 14.8% during the prior quarter and the third quarter of 2019, respectively. The adjusted operating margin2 was 15.9% during the third quarter of 2019.

AUM ended the quarter at $67.9 billion, an increase of 4% compared to the prior quarter primarily due to market appreciation and a decrease of 1% compared to the third quarter of 2019. Average AUM were $67.9 billion during the current quarter, compared to $61.7 billion during the prior quarter and $70.5 billion during the third quarter of 2019. Net outflows of $1.8 billion during the current quarter were higher compared to net outflows of $1.4 billion in the prior quarter and were lower compared to net outflows of $2.7 billion in the third quarter of 2019. Sales of $1.8 billion during the current quarter decreased 17% compared to the prior quarter and increased 2% compared to the third quarter of 2019. Redemptions were slightly better compared to the prior quarter and were 19% better compared to the third quarter of 2019.

Wealth management AUA ended the quarter at $62.7 billion, an increase of 6% and 10%, compared to the second quarter of 2020 and the third quarter of 2019, respectively. Average AUA were $61.4 billion during the current quarter, compared to $55.2 billion during the prior quarter and $57.4 billion during the third quarter of 2019. Net new advisory AUA was $437.3 million, as advisory products continue to drive the majority of new sales. Non-advisory asset flows continue to be negative, experiencing an increase in outflows compared to the prior quarter and reduced outflows compared to the same quarter in 2019.

______________________________

1 Controllable expenses defined as compensation and benefits, general and administrative, occupancy, technology, and marketing and advertising costs

2 See Non-GAAP Financial Measures section and Reconciliation of GAAP to Non-GAAP Financial Measures table

Revenues Analysis

Investment management fees increased $10.8 million, or 11%, compared to the second quarter of 2020 due to a 10% increase in average AUM and one additional day in the quarter partially offset by additional money market fee waivers. The effective management fee rate for the current quarter was 62.4 basis points remaining consistent with the prior quarter’s rate. Compared to the third quarter of 2019, investment management fees declined $5.2 million, or 5%, primarily due to lower average AUM and a lower effective management fee rate due to targeted fee reductions made in previous periods and money market fee waivers.

Underwriting and distribution fees increased $15.8 million, or 13%, compared to the prior quarter due to higher advisory fees and higher service and distribution fees due to higher asset levels. In addition, sales commissions were $2.7 million higher compared to the prior quarter as a result of increased sales activity across insurance product lines. Compared to the same quarter in 2019, underwriting and distribution fees increased $3.7 million, or 3%, due to increased advisory fees from higher asset levels, partially offset by lower sales commissions and lower service and distribution fees from lower asset levels.

Shareholder service fees increased $1.0 million, or 5%, compared to the second quarter of 2020 primarily due to an increase in average assets and one additional day in the quarter. Compared to the third quarter of 2019, shareholder service fees declined $1.5 million, or 6%, due to a decrease in average assets and fewer accounts. There was also a reduction in fund reimbursement revenues related to the outsourcing of our transfer agency transactional processing operations which was offset by lower costs.

Operating Expenses Analysis

Controllable expenses decreased $0.7 million and $3.2 million compared to the prior quarter and the third quarter of 2019, respectively as investment in targeted growth areas of our strategy continue.

Distribution expenses increased $14.3 million, or 13%, compared to the prior quarter and increased $4.8 million, or 4%, compared to the third quarter of 2019 as a result of the increase in underwriting and distribution revenue. The expense increase compared to the third quarter of 2019 was larger than the revenue increase primarily due to an increase in the average advisor payout rate from continued increases in production.

Compensation and benefits expense increased $0.6 million, or 1%, compared to the prior quarter primarily due to an increase in base salaries and benefits expense due to an increase in headcount. These increases were partially offset by mark-to-market adjustments on equity-based compensation. Compared to the third quarter of 2019, compensation and benefits expense decreased $2.6 million, or 4%, due to severance paid related to the outsourcing of our transfer agency transactional processing operations in the third quarter of 2019, lower costs from reduced headcount and lower equity-based compensation. These decreases were partially offset by mark-to-market adjustments on deferred compensation plans.

General and administrative expenses decreased $1.4 million, or 7%, compared to the second quarter of 2020 primarily due to lower meeting costs. Compared to the same quarter in 2019, general and administrative expenses increased $2.5 million, or 15%, due to a shift of our transfer agency transactional processing operations costs from technology expenses to general and administrative expenses as a result of outsourcing and increased strategic project spending, partially offset by lower travel and meetings costs.

Technology costs were consistent with the prior quarter as higher software costs for new technologies were offset by lower technology consulting costs. Technology costs decreased $0.8 million, or 5%, compared to the third quarter of 2019 as costs related to the transfer agency transactional processing operations outsourcing were shifted to general and administrative expenses. This decrease was partially offset by increased consulting and software costs for new technologies.

Occupancy expenses decreased $0.1 million, or 3%, compared to the prior quarter and decreased $1.5 million, or 27%, compared to the third quarter of 2019. For both comparative periods, occupancy costs decreased as a result of the planned transition out of corporate field offices in our wealth manager.

Marketing and advertising expenses increased slightly compared to the prior quarter and decreased $0.8 million, or 36%, compared to the third quarter of 2019 primarily due to lower sponsorship fees in connection with the shift to virtual industry conferences.

Depreciation expense declined slightly compared to the prior quarter and declined $1.8 million, or 38%, compared to the third quarter of 2019 due to capitalized software development assets becoming fully depreciated.

Investment and Other Income

Investment and other income decreased $9.7 million compared to the prior quarter due to lower unrealized gains, net of hedging activity, on the seed and corporate investment portfolios and an increase in pension expense as a result of the pension plan liquidation in the third quarter of 2020. Compared to the third quarter of 2019, investment and other income increased slightly as higher unrealized gains, net of hedging activity, on the seed and corporate investment portfolio were offset by an increase in pension expense due to the plan liquidation and a decline in interest income for the corporate investment portfolio.

The effective tax rate was 24.8% and was consistent with the prior quarter’s rate of 25.3%. Compared to the third quarter of 2019, the rate increased slightly, primarily due to increased state taxes as a result of additional filings in the current quarter.

AUM
(in millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

 

 

Sep. 30,

Jun. 30,

Sep. 30,

 

 

Prior Qtr.

 

 

Year-over-Year Qtr.

 

 

2020

2020

2019

 

 

Change

 

%

 

 

Change

 

%

Unaffiliated1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

23,724

 

$

20,244

 

$

27,545

 

 

$

3,480

 

 

17

%

 

$

(3,821

)

 

(14

)%

Sales2

 

 

1,127

 

 

1,490

 

 

999

 

 

 

(363

)

 

(24

)%

 

 

128

 

 

13

%

Redemptions

 

 

(1,977

)

 

(2,179

)

 

(2,684

)

 

 

202

 

 

9

%

 

 

707

 

 

26

%

Net exchanges

 

 

239

 

 

205

 

 

334

 

 

 

34

 

 

17

%

 

 

(95

)

 

(28

)%

Net Flows

 

 

(611

)

 

(484

)

 

(1,351

)

 

 

(127

)

 

(26

)%

 

 

740

 

 

55

%

Market action

 

 

1,755

 

 

3,964

 

 

(337

)

 

 

(2,209

)

 

(56

)%

 

 

2,092

 

 

621

%

Ending assets

 

$

24,868

 

$

23,724

 

$

25,857

 

 

$

1,144

 

 

5

%

 

$

(989

)

 

(4

)%

Annualized organic growth rate

 

 

(10.3

)%

 

(9.6

)%

 

(19.6

)%

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate3

 

 

32.3

%

 

39.9

%

 

40.9

%

 

 

 

 

 

 

 

 

 

 

Institutional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

2,997

 

$

2,427

 

$

3,887

 

 

$

570

 

 

23

%

 

$

(890

)

 

(23

)%

Sales2

 

 

59

 

 

52

 

 

49

 

 

 

7

 

 

13

%

 

 

10

 

 

20

%

Redemptions

 

 

(165

)

 

(202

)

 

(230

)

 

 

37

 

 

18

%

 

 

65

 

 

28

%

Net exchanges

 

 

 

 

22

 

 

 

 

 

(22

)

 

NM

 

 

 

 

 

NM

%

Net Flows

 

 

(106

)

 

(128

)

 

(181

)

 

 

22

 

 

17

%

 

 

75

 

 

41

%

Market action

 

 

297

 

 

698

 

 

(29

)

 

 

(401

)

 

(57

)%

 

 

326

 

 

1,124

%

Ending assets

 

$

3,188

 

$

2,997

 

$

3,677

 

 

$

191

 

 

6

%

 

$

(489

)

 

(13

)%

Annualized organic growth rate

 

 

(14.1

)%

 

(21.1

)%

 

(18.6

)%

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate3

 

 

20.5

%

 

28.6

%

 

23.9

%

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

38,245

 

$

33,339

 

$

40,444

 

 

$

4,906

 

 

15

%

 

$

(2,199

)

 

(5

)%

Sales2

 

 

634

 

 

649

 

 

744

 

 

 

(15

)

 

(2

)%

 

 

(110

)

 

(15

)%

Redemptions

 

 

(1,488

)

 

(1,259

)

 

(1,542

)

 

 

(229

)

 

(18

)%

 

 

54

 

 

4

%

Net exchanges

 

 

(239

)

 

(227

)

 

(334

)

 

 

(12

)

 

(5

)%

 

 

95

 

 

28

%

Net Flows

 

 

(1,093

)

 

(837

)

 

(1,132

)

 

 

(256

)

 

(31

)%

 

 

39

 

 

3

%

Market action

 

 

2,661

 

 

5,743

 

 

(64

)

 

 

(3,082

)

 

(54

)%

 

 

2,725

 

 

4,258

%

Ending assets

 

$

39,813

 

$

38,245

 

$

39,248

 

 

$

1,568

 

 

4

%

 

$

565

 

 

1

%

Annualized organic growth rate

 

 

(11.4

)%

 

(10.0

)%

 

(11.2

)%

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate3

 

 

13.1

%

 

11.6

%

 

13.4

%

 

 

 

 

 

 

 

 

 

 

Consolidated Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning assets

 

$

64,966

 

$

56,010

 

$

71,876

 

 

$

8,956

 

 

16

%

 

$

(6,910

)

 

(10

)%

Sales2

 

 

1,820

 

 

2,191

 

 

1,792

 

 

 

(371

)

 

(17

)%

 

 

28

 

 

2

%

Redemptions

 

 

(3,630

)

 

(3,640

)

 

(4,456

)

 

 

10

 

 

%

 

 

826

 

 

19

%

Net exchanges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Flows

 

 

(1,810

)

 

(1,449

)

 

(2,664

)

 

 

(361

)

 

(25

)%

 

 

854

 

 

32

%

Market action

 

 

4,713

 

 

10,405

 

 

(430

)

 

 

(5,692

)

 

(55

)%

 

 

5,143

 

 

1,196

%

Ending assets

 

$

67,869

 

$

64,966

 

$

68,782

 

 

$

2,903

 

 

4

%

 

$

(913

)

 

(1

)%

Annualized organic growth rate

 

 

(11.1

)%

 

(10.3

)%

 

(14.8

)%

 

 

 

 

 

 

 

 

 

 

Annualized redemption rate3

 

 

20.5

%

 

22.6

%

 

24.3

%

 

 

 

 

 

 

 

 

 

 

____________________________

1

Unaffiliated includes National channel (home office and wholesale), Defined Contribution Investment Only, Registered Investment Advisor and Variable Annuity.

2

Sales consist of gross sales and includes net reinvested dividends, capital gains and investment income.

3

Excludes Money Market.

 

 

 

 

 

 

 

 

MorningStar Fund Rankings1

 

1 Year

 

3 Years

 

5 Years

 

Funds ranked in top half

 

49

%

49

%

39

%

Assets ranked in top half

 

43

%

52

%

47

%

MorningStar Ratings1

 

Overall

 

3 Years

 

5 Years

 

Funds with 4/5 stars

 

26

%

28

%

19

%

Assets with 4/5 stars

 

40

%

42

%

35

%

_____________________

1 Based on class I share, which reflects the largest concentration of sales and assets.

 

 

Wealth Management

 

Sep. 30,

Jun. 30,

Sep. 30,

 

Prior Qtr.

 

 

Year-over-Year Qtr.

(in millions)

 

2020

2020

2019

 

Change

 

%

 

 

Change

 

%

AUA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending advisory AUA

 

$

29,330

 

$

27,155

 

$

25,107

 

$

2,175

 

 

8

%

 

$

4,223

 

 

17

%

Ending non-advisory AUA

 

 

33,364

 

 

31,836

 

 

32,006

 

 

1,528

 

 

5

%

 

 

1,358

 

 

4

%

Ending total AUA

 

 

62,694

 

 

58,991

 

 

57,113

 

 

3,703

 

 

6

%

 

 

5,581

 

 

10

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average advisory AUA 1

 

$

28,502

 

$

25,030

 

$

24,921

 

$

3,472

 

 

14

%

 

$

3,581

 

 

14

%

Average non-advisory AUA 1

 

 

32,898

 

 

30,151

 

 

32,490

 

 

2,747

 

 

9

%

 

 

408

 

 

1

%

Average AUA 1

 

 

61,400

 

 

55,181

 

 

57,411

 

 

6,219

 

 

11

%

 

 

3,989

 

 

7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net new advisory AUA 2

 

$

437

 

$

189

 

$

328

 

$

248

 

 

131

%

 

$

109

 

 

33

%

Net new non-advisory AUA 2, 3

 

 

(475

)

 

(346

)

 

(720

)

 

(129

)

 

(37

)%

 

 

245

 

 

34

%

Total net new AUA 2, 3

 

 

(38

)

 

(157

)

 

(392

)

 

119

 

 

76

%

 

 

354

 

 

90

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Annualized advisory AUA growth 4

 

 

6.4

%

 

3.3

%

 

5.3

%

 

 

 

 

 

 

 

 

 

Annualized AUA growth 4

 

 

(0.3

)%

 

(1.2

)%

 

(2.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advisors and advisor associates

 

 

1,313

 

 

1,317

 

 

1,344

 

 

(4

)

 

%

 

 

(31

)

 

(2

)%

Avg. trailing 12-month revenue per advisor 5 (in thousands)

 

$

474

 

$

464

 

$

422

 

$

10

 

 

2

%

 

$

52

 

 

12

%

_________________________

1 

Average AUA are calculated as the average of the beginning of month AUA during each reporting period.

2 

Net new AUA are calculated as total client deposits and net transfers less client withdrawals. Client deposits include dividends and interest.

3 

Excludes activity related to products held outside of our wealth management platform.  These assets represent less than 10% of total AUA.

4 

Annualized growth is calculated as annualized quarterly net new AUA divided by beginning AUA.

5 

Production per Advisor is calculated as trailing 12- month Total underwriting and distribution fees less “other” underwriting and distribution fees divided by the average number of advisors.  “Other” underwriting and distribution fees predominantly includes fees paid by advisors for programs and services.

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

Three Months Ended

 

 

 

 

 

 

 

 

 

 

Sep. 30,

 

Jun. 30,

 

Sep. 30,

 

Prior Qtr.

Year-over-Year Qtr.

 

2020

 

2020

 

2019

 

Change

 

%

Change

 

%

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment management fees

$

106,617

 

 

$

95,824

 

 

$

111,806

 

 

$

10,793

 

 

11

%

$

(5,189

)

 

(5

)%

Underwriting and distribution fees

 

139,456

 

 

 

123,633

 

 

 

135,787

 

 

 

15,823

 

 

13

%

 

3,669

 

 

3

%

Shareholder service fees

 

21,597

 

 

 

20,577

 

 

 

23,087

 

 

 

1,020

 

 

5

%

 

(1,490

)

 

(6

)%

Total

 

267,670

 

 

 

240,034

 

 

 

270,680

 

 

 

27,636

 

 

12

%

 

(3,010

)

 

(1

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution1

 

122,195

 

 

 

107,876

 

 

 

117,425

 

 

 

14,319

 

 

13

%

 

4,770

 

 

4

%

Compensation and benefits (including share-based compensation of $11,080, $12,532 and $11,580, respectively)

 

62,416

 

 

 

61,863

 

 

 

64,999

 

 

 

553

 

 

1

%

 

(2,583

)

 

(4

)%

General and administrative

 

19,156

 

 

 

20,524

 

 

 

16,680

 

 

 

(1,368

)

 

(7

)%

 

2,476

 

 

15

%

Technology

 

14,250

 

 

 

14,237

 

 

 

15,019

 

 

 

13

 

 

0

%

 

(769

)

 

(5

)%

Occupancy

 

4,160

 

 

 

4,291

 

 

 

5,684

 

 

 

(131

)

 

(3

)%

 

(1,524

)

 

(27

)%

Marketing and advertising

 

1,370

 

 

 

1,119

 

 

 

2,134

 

 

 

251

 

 

22

%

 

(764

)

 

(36

)%

Depreciation

 

2,998

 

 

 

3,209

 

 

 

4,833

 

 

 

(211

)

 

(7

)%

 

(1,835

)

 

(38

)%

Subadvisory fees

 

3,490

 

 

 

3,288

 

 

 

3,882

 

 

 

202

 

 

6

%

 

(392

)

 

(10

)%

Total

 

230,035

 

 

 

216,407

 

 

 

230,656

 

 

 

13,628

 

 

6

%

 

(621

)

 

%

Operating income

 

37,635

 

 

 

23,627

 

 

 

40,024

 

 

 

14,008

 

 

59

%

 

(2,389

)

 

(6

)%

Investment and other income

 

5,449

 

 

 

15,148

 

 

 

5,212

 

 

 

(9,699

)

 

(64

)%

 

237

 

 

5

%

Interest expense

 

(1,542

)

 

 

(1,539

)

 

 

(1,562

)

 

 

(3

)

 

%

 

20

 

 

1

%

Income before provision for income taxes

 

41,542

 

 

 

37,236

 

 

 

43,674

 

 

 

4,306

 

 

12

%

 

(2,132

)

 

(5

)%

Provision for income taxes

 

10,296

 

 

 

9,412

 

 

 

10,175

 

 

 

884

 

 

9

%

 

121

 

 

1

%

Net income

 

31,246

 

 

 

27,824

 

 

 

33,499

 

 

 

3,422

 

 

12

%

 

(2,253

)

 

(7

)%

Net income attributable to redeemable noncontrolling interests

 

723

 

 

 

3,000

 

 

 

445

 

 

 

(2,277

)

 

(76

)%

 

278

 

 

62

%

Net income attributable to Waddell & Reed Financial, Inc.

$

30,523

 

 

$

24,824

 

 

$

33,054

 

 

$

5,699

 

 

23

%

$

(2,531

)

 

(8

)%

Net income per share, basic and diluted:

$

0.48

 

 

$

0.38

 

 

$

0.46

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

64,240

 

 

 

65,488

 

 

 

72,387

 

 

 

 

 

 

 

 

 

 

Operating margin

 

14.1

%

 

9.8

%

 

14.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Distribution expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unaffiliated

 

22,733

 

 

 

20,587

 

 

 

24,068

 

 

 

 

 

 

 

 

 

 

Wealth Management

 

99,462

 

 

 

87,289

 

 

 

93,357

 

 

 

 

 

 

 

 

 

 

 

$

122,195

 

 

$

107,876

 

 

$

117,425

 

 

 

 

 

 

 

 

 

 

Unaudited Consolidated Statements of Income

(in thousands, except per share data and margin)

 

 

Nine Months Ended

 

 

 

 

 

 

Sep. 30,

Sep. 30,

 

 

 

2020

2019

Change

 

%

Revenues:

 

 

 

 

 

 

 

 

 

Investment management fees

 

$

307,660

 

$

334,438

 

$

(26,778

)

 

(8

)%

Underwriting and distribution fees

 

 

400,032

 

 

395,527

 

 

4,505

 

 

1

%

Shareholder service fees

 

 

63,745

 

 

70,279

 

 

(6,534

)

 

(9

)%

Total

 

 

771,437

 

 

800,244

 

 

(28,807

)

 

(4

)%

Operating expenses:

 

 

 

 

 

 

 

 

 

Distribution1

 

 

350,104

 

 

343,696

 

 

6,408

 

 

2

%

Compensation and benefits (including share-based compensation of $33,595 and $35,471, respectively)

 

 

182,704

 

 

191,718

 

 

(9,014

)

 

(5

)%

General and administrative

 

 

58,278

 

 

47,421

 

 

10,857

 

 

23

%

Technology

 

 

41,989

 

 

47,769

 

 

(5,780

)

 

(12

)%

Occupancy

 

 

13,160

 

 

19,100

 

 

(5,940

)

 

(31

)%

Marketing and advertising

 

 

4,385

 

 

6,497

 

 

(2,112

)

 

(33

)%

Depreciation

 

 

9,720

 

 

16,062

 

 

(6,342

)

 

(39

)%

Subadvisory fees

 

 

10,444

 

 

11,154

 

 

(710

)

 

(6

)%

Total

 

 

670,784

 

 

683,417

 

 

(12,633

)

 

(2

)%

Operating income

 

 

100,653

 

 

116,827

 

 

(16,174

)

 

(14

)%

Investment and other income

 

 

12,852

 

 

23,690

 

 

(10,838

)

 

(46

)%

Interest expense

 

 

(4,630

)

 

(4,662

)

 

32

 

 

1

%

Income before provision for income taxes

 

 

108,875

 

 

135,855

 

 

(26,980

)

 

(20

)%

Provision for income taxes

 

 

29,341

 

 

35,036

 

 

(5,695

)

 

(16

)%

Net income

 

 

79,534

 

 

100,819

 

 

(21,285

)

 

(21

)%

Net income attributable to redeemable noncontrolling interests

 

 

2,201

 

 

1,763

 

 

438

 

 

25

%

Net income attributable to Waddell & Reed Financial, Inc.

 

$

77,333

 

$

99,056

 

$

(21,723

)

 

(22

)%

Net income per share, basic and diluted:

 

$

1.18

 

$

1.33

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

65,795

 

 

74,446

 

 

 

 

 

Operating margin

 

 

13.0

%

 

14.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1Distribution expense

 

 

 

 

 

 

 

 

 

Unaffiliated

 

 

66,944

 

 

73,326

 

 

 

 

 

Wealth Management

 

 

283,160

 

 

270,370

 

 

 

 

 

 

 

$

350,104

 

$

343,696

 

 

 

 

 

Underwriting and distribution fees

(in thousands)

 

 

For the three months ended Sep. 30, 2020

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

82,591

 

$

82,591

Service and distribution fees

 

 

14,623

 

 

15,305

 

 

29,928

Sales commissions

 

 

223

 

 

17,847

 

 

18,070

Other revenues

 

 

82

 

 

8,785

 

 

8,867

Total underwriting and distribution fees

 

$

14,928

 

$

124,528

 

$

139,456

 

 

For the three months ended Jun. 30, 2020

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

72,534

 

$

72,534

Service and distribution fees

 

 

13,670

 

 

13,600

 

 

27,270

Sales commissions

 

 

373

 

 

15,034

 

 

15,407

Other revenues

 

 

91

 

 

8,331

 

 

8,422

Total underwriting and distribution fees

 

$

14,134

 

$

109,499

 

$

123,633

 

 

For the three months ended Sep. 30, 2019

 

 

Unaffiliated

 

Wealth Management

 

Total

Advisory fees

 

$

 

$

73,356

 

$

73,356

Service and distribution fees

 

 

16,286

 

 

16,143

 

 

32,429

Sales commissions

 

 

364

 

 

20,544

 

 

20,908

Other revenues

 

 

67

 

 

9,027

 

 

9,094

Total underwriting and distribution fees

 

$

16,717

 

$

119,070

 

$

135,787

 

 

For the nine months ended Sep. 30, 2020

 

 

Unaffiliated

 

Wealth Management

 

Total